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Bank-Specific and Macroeconomic Determinants of Profitability of Islamic Shariah-Based Banks: Evidence from New Economic Horizon Using Panel Data

Author

Listed:
  • Md. Abu Issa Gazi

    (INTI International University, Persiaran Perdana BBN Putra Nilai, Nilai 71800, Negeri Sembilan, Malaysia
    School of Management, Jiujiang University, Jiujiang 332005, China)

  • Rejaul Karim

    (Department of Business Administration, Varendra University, Rajshahi 6204, Bangladesh)

  • Abdul Rahman bin S Senathirajah

    (Faculty of Business and Communications, INTI International University, Persiaran Perdana BBN Putra Nilai, Nilai 71800, Negeri Sembilan, Malaysia)

  • A. K. M Mahfuj Ullah

    (Department of Business Administration, Rajshahi Science and Technology University, Natore 6400, Bangladesh)

  • Kaniz Habiba Afrin

    (Department of Business Administration, Varendra University, Rajshahi 6204, Bangladesh)

  • Md. Nahiduzzaman

    (Department of Finance and Banking, Bangabandhu Sheikh Mujibur Rahman Science and Technology University, Gopalganj 8100, Bangladesh)

Abstract

The purpose of this study is to analyze significant variables that permit us to ascertain the profitability of Bangladeshi Shariah-based banks. In doing so, two profitability measurements, namely, return on asset (ROA) and return on equity (ROE), have been used as dependent variables, while capital adequacy, asset management quality, operational efficiency, credit risk, liquidity, and the size of the bank have been considered as bank-specific independent variables. In addition, the rate of interest, inflation, and GDP growth rate have also been taken as macroeconomic independent variables. This study examined panel data of eight Shariah-based Islamic banks over a thirteen-year period spanning from 2010 to 2022, applying different kinds of linear regression models, including pooled ordinary least squares (OLS), fixed effects, and random effects. Subsequently, the generalized method of moments (GMM) approach is also applied to assess the robustness of the findings. The results revealed that the profitability of Bangladeshi Shariah-based Islamic banks is positively associated with asset management quality, liquidity, and credit risk. In contrast, capital adequacy, operational efficiency, and bank size are negatively correlated with the bank’s profitability. Concerning the macroeconomic factors, the findings indicated a notable positive correlation between the profitability of Shariah-based banks in Bangladesh and both the inflation rate and the interest rate spread. However, this study has also found that the profitability of the sample banks of Bangladesh is not significantly influenced by GDP growth. By providing fresh empirical data, the current research aimed to close a significant vacuum in the body of knowledge on banks and provide important insights for policymakers, managers, and other stakeholders by focusing on particular bank-specific and macroeconomic aspects that influence the profitability of Shariah-based Islamic banks in Bangladesh.

Suggested Citation

  • Md. Abu Issa Gazi & Rejaul Karim & Abdul Rahman bin S Senathirajah & A. K. M Mahfuj Ullah & Kaniz Habiba Afrin & Md. Nahiduzzaman, 2024. "Bank-Specific and Macroeconomic Determinants of Profitability of Islamic Shariah-Based Banks: Evidence from New Economic Horizon Using Panel Data," Economies, MDPI, vol. 12(3), pages 1-18, March.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:3:p:66-:d:1353582
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    References listed on IDEAS

    as
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    Cited by:

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    2. Hassan, M. Kabir & Kazak, Hasan & Öner, Muhammed Hadin & Akcan, Ahmet Tayfur & Tekdogan, Omer Faruk, 2026. "The impact of sukuk issuances on liquidity, profitability, and asset quality of Islamic banks," Research in International Business and Finance, Elsevier, vol. 81(C).
    3. Ibrahim Umar Sarkin Aski & Ahmadu Abubakar, 2025. "Determinants of Financial Performance in Nigerian Deposit Money Banks: The Role of Bank-Specific and Macroeconomic Factors," Electronic Journal of Business and Management, Asia Pacific University of Technology & Innovation (APU), vol. 10(4), pages 77-90.

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